Compute profitability per pound under abc system at lehigh

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Reference no: EM131404567

Assignment

Exhibit 4 Sample Product Data

 

Alloy: Condition Round

Conversion: Roller Wire

Die Steel: Chipper Knife

Die Steel: Round Bar

High Speed: Machine Coil

Production (lbs)

478,679

2,081,543

2,413,299

6,697,682

2,530,552

Number of skus

311

473

418

172

102

Number of orders

957

4,163

3,218

3,349

1,012

Bill of Materials (lbs / lb of output)






Steel scrap

1.00

0.00

1.00

1.00

1.00

Alloys

0.01

0.00

0.01

0.01

0.01

 

(@ $48.29 / lb)


(@ $6.29 / lb)

(@ $15.29 / lb)

(@ $152.29 / lb)

Machine Time (min / lb; crew = 1)






Melting (Electric Arc Furnace)

0.20

0.00

0.09

0.09

0.09

Refining (VOD)

0.21

0.00

0.10

0.10

0.10

Molding / Breakdown (Ingot / PFF)

0.12

0.00

0.07

0.08

0.07

Rolling (CRM)

0.10

0.15

0.33

0.09

0.03

Finishing (multiple)

0.06

0.02

0.07

0.08

0.05

Total time

0.69

0.17

0.66

0.44

0.34

Exhibit 5 Standard Cost Results

Standard Cost ($ / lb)

Alloy: Condition Round

Conversion: Roller Wire

Die Steel: Chipper Knife

Die Steel: Round Bar

High Speed: Machine Coil

Price

$2.31

$0.77

$1.02

$0.93

$2.33

Materials

$0.54

$0.00

$0.12

$0.21

$1.58

Direct labor

$0.29

$0.07

$0.28

$0.18

$0.14

Direct manufacturing expense

$0.24

$0.06

$0.23

$0.16

$0.12

Contribution margin

$1.24

$0.64

$0.39

$0.38

$0.49

Contribution margin (%)

53.7%

83.1%

38.2%

40.9%

21.0%

Total contribution

$593,562

$1,332,188

$941,187

$2,545,119

$1,239,970

Manufacturing & administrative overhead

$0.64

$0.64

$0.64

$0.64

$0.64

Operating profit

$0.60

$0.00

($0.25)

($0.26)

($0.15)

Operating profit (%)

26.0%

0.0%

-24.5%

-28.0%

-6.4%

Total operating profit

$287,207

$0

($603,325)

($1,741,397)

($379,583)

Exhibit 6 Lehigh Activity Cost Pools

Activity

Driver

Driver Volume

Amount

Melting: Depreciation

melt machine minutes

5,145,632

$2,139,865

Melting: Maintenance

melt machine minutes

5,145,632

$975,130

Melting: Utilities

melt machine minutes

5,145,632

$2,036,477

Refining: Depreciation

refine machine minutes

5,691,042

$1,711,892

Refining: Maintenance

refine machine minutes

5,691,042

$780,104

Refining: Utilities

refine machine minutes

5,691,042

$1,745,551

Molding: Depreciation

mold machine minutes

4,226,965

$427,973

Molding: Maintenance

mold machine minutes

4,226,965

$390,052

Molding: Utilities

mold machine minutes

4,226,965

$290,925

Rolling: Depreciation

roll machine minutes

8,258,382

$2,995,811

Rolling: Maintenance

roll machine minutes

8,258,382

$975,130

Rolling: Utilities

roll machine minutes

8,258,382

$872,776

Finishing: Depreciation

finish machine minutes

4,057,311

$1,283,919

Finishing: Maintenance

finish machine minutes

4,057,311

$780,104

Finishing: Utilities

finish machine minutes

4,057,311

$872,776

General & Administrative

pounds

50,299,420

$5,400,955

Material Handling & Setup*

orders

57,147

$4,936,068

Order Processing

orders

57,147

$3,953,709

Production Planning

orders

57,147

$3,339,500

Technical Support

skus

6,642

$5,766,579

Total



$41,675,296

1. For each of the five sample products, compute the profitability per pound under the ABC system at Lehigh.

2. For each of the five sample products, compute the profitability per pound per unit of the constraint under the TOC approach implemented at Lehigh.

3. Critique the ABC and TOC approaches with respect to determining Lehigh's optimal product mix. Which costing system/perspective should Lehigh use to determine its product mix? Devise an alternative method of calculating profits that combines the insights/assumptions of ABC and TOC in a way that is appropriate for Lehigh's business situation while eliminating those insights/assumptions that are inappropriate in the current situation.

4. Compute the profits for the five sample products under the new method you advocate in #3.

Reference no: EM131404567

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